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Dark premonitions: Pre-bankruptcy investor attention and behavior

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  • Lohmann, Christian
  • Möllenhoff, Steffen

Abstract

This study examines investor attention and behavior in the periods leading up to bankruptcy. In particular, we analyze whether companies that are effectively bankrupt or peer companies that are financially distressed but remain solvent receive more investor attention. Using extensive data on the activity recorded on the SEC's EDGAR server, we show that companies that are effectively bankrupt receive substantially more attention from investors prior to declaring bankruptcy than peer companies that are financially distressed but remain solvent. This abnormal level of attention can be observed at least 18 months before bankruptcy. Furthermore, we show that professional investors who pay unusual attention to distressed companies that eventually go bankrupt start selling their respective holdings more than 12 months before these companies declare bankruptcy. As a result, the entire study documents the full process of information gathering and processing and subsequent portfolio choices in the case of imminent bankruptcies.

Suggested Citation

  • Lohmann, Christian & Möllenhoff, Steffen, 2023. "Dark premonitions: Pre-bankruptcy investor attention and behavior," Journal of Banking & Finance, Elsevier, vol. 151(C).
    • Handle: RePEc:eee:jbfina:v:151:y:2023:i:c:s037842662300078x
    DOI: 10.1016/j.jbankfin.2023.106853
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    More about this item

    Keywords

    Bankruptcy; EDGAR log-file data set; Form 13F; Investor attention;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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